Navigating Regulatory Updates and Budget Changes in Federal Grants: Strategies for Ensuring Compliance and Operational Stability  

Navigating the current federal grants landscape requires a strategic approach considering dynamic changes in policies, funding levels, and administrative guidelines. It is essential for organizations to stay informed and adapt to ensure compliance and operational stability. As regulatory scrutiny intensifies, robust internal control procedures become paramount for mitigating risks and safeguarding against fraud and wasteful spending. This blog provides actionable insights and tools to help grant recipients, pass-through entities, and other stakeholders manage these changes effectively, covering critical aspects of internal controls, risk assessments, and the implications of recent regulatory updates. 

Adapting to Recent Regulatory and Budget Changes 

Understanding the recent updates to the uniform guidance is critical for organizations. The 2 CFR Part 200 was revised in April 2024, with the changes taking effect on October 1, 2024. These revisions aim to reduce bureaucratic overhead and make language more understandable. Notable changes include increasing the Indirect Cost de minimis rate from 10% to 15%, raising the single audit threshold from $750,000 to $1,000,000, and introducing a standardized notice of funding opportunity (NOFO) template. Organizations must ensure their internal policies align with these updates and utilize available resources, such as summaries and training courses, to remain compliant and minimize administrative burdens. 

Budget uncertainty is another critical area to monitor. The continuing resolution for fiscal year 2025 has extended the 2024 funding levels with modifications, such as removing certain congressionally earmarked projects and restricting new multi-year procurements. Both the House and Senate have passed their budget resolutions for 2026, proposing significant cuts in areas like health, education, and defense. These changes could impact formula grants and discretionary funding, making it essential for organizations to stay updated on the latest developments. The political maneuvering required to pass the budget will likely continue throughout the summer, necessitating patience and vigilance. 

Executive actions are also contributing to current turbulence, driving agency reorganizations and policy shifts. Restructuring of HHS and NIH, along with changes in USAID, will affect grant programs and priorities. Understanding these executive orders and their implications is crucial for grant recipients. Organizations should focus on change management by anticipating potential impacts, informing stakeholders, and ensuring clear communication. This proactive approach will help mitigate the effects of policy evolution and maintain operational stability. 

Organizations should prioritize strengthening their financial systems, performance measures, and audit readiness considering these changes. Robust financial systems are essential for managing expenditures and ensuring compliance. Clear performance measures that align with the new administration’s priorities will demonstrate the effectiveness of grant-funded programs. Additionally, audit readiness is crucial, especially with the increased focus on oversight and reducing waste. Organizations should review their internal controls and ensure they are prepared for these potential oversight and compliance checks. This focus on financial integrity and performance accountability will help navigate the current landscape more effectively. 

Heightened emphasis on fraud prevention and documentation is a foremost concern for organizations. With increasing public and governmental focus on financial transparency, companies must bolster their monitoring and reporting mechanisms. This involves adhering to internal controls and ensuring these controls are effectively communicated and understood across the organization. Detailed risk assessments along with regular site visits for high-risk entities are essential practices that can help identify potential vulnerabilities and ensure compliance throughout the grant lifecycle. 

The evolving regulatory environment also brings changes to indirect cost rates, significantly impacting budget planning and financial management. Negotiated indirect cost rates are under scrutiny, with some agencies pushing for renegotiation or implementing blanket caps. This shift can pose challenges, especially for institutions with historically high indirect cost rates. Organizations must stay informed about these changes and proactively engage in discussions with cognizant agencies to navigate the implications on their financial strategies. 

The transition from advance payments to reimbursable payments, as outlined in Executive Order 14222, necessitates a thorough review of transactions and supporting documentation, placing additional workload on both agency and recipient sides. While this change aims to enhance oversight and reduce improper payments, it requires organizations to reassess their cash flow management and budget planning processes. Implementing robust financial systems and ensuring meticulous documentation can alleviate some of the upfront challenges and streamline the reimbursement process. 

The interplay between executive orders, uniform guidance, and federal acquisition regulations further complicates the regulatory landscape. Organizations must seek higher-level guidance and potentially legal counsel to navigate conflicts between statutory requirements and executive directives. Understanding the statutory basis for regulations and staying abreast of judicial interpretations, such as the recent Chevron doctrine rescission, can provide a more solid ground for compliance and decision-making. 

The evolving federal grants landscape requires organizations to adapt for compliance and effectiveness. Understanding updates to uniform guidance, monitoring budget changes, and managing executive actions are crucial for navigating this environment. Strengthening financial systems, performance measures, and audit readiness provide a solid foundation. Vigilance and proactive measures, such as enhancing internal controls, conducting risk assessments, and maintaining robust financial documentation, are essential. By prioritizing training, performance management, and fraud detection, organizations can enhance resilience and continue delivering impactful programs and services. 

To get a more comprehensive overview, watch our recent webinar Grants Check-In: Where We Are and What You Should Know on-demand.